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Use this ratio to work out how much gold you should have in your portfolio

by , 18 September 2015

There are a number of reasons why investors buy physical gold. It can add diversification to your portfolio and it's also a hedge against financial crisis.

The general rule of thumb is to own anything between 5% and 10% of your portfolio in gold. But is this how much you should own?

Read on to find out how much gold you should have in your portfolio…


Working out the best amount of gold to hold


It can be hard to know how much gold is right for you.

But Keith Fitz-Gerald of Money Morning US believes you should own R1 of gold for every R10 you have in bonds. Or, to put it another way, hold a 1:10 ratio in gold and bonds.

He believes this is the best way to hedge your risk in the financial markets.

For instance, let’s say you have R100,000 in bonds. Using the above ratio, this means you’d have R10,000 in gold. You could store this in exchange traded funds, coins or bullion.

Once you’ve decided how much you should own, you need to rebalance this ratio every year:

  • If your gold holdings have risen above the prescribed ratio, you can sell enough to bring it back into line.
  • If your gold holdings have fallen below the prescribed ratio, you can buy more to bring it back into line.
  • Or add new money to your holdings and buy more gold or bonds to maintain the ratio.


How to start investing in gold


If you don’t have any physical gold in your portfolio, but want to add some, don’t just run out and buy a chunk of gold.

With the price of gold being rather volatile, it’s a good idea to spread your investment across a few transactions over time so you can benefit from rand cost averaging.

This allows you to make the most out of volatile gold prices.

It’s important to maximise performance, minimise risk and strengthen your portfolio with gold. Just make sure you go about it in the right way.

So there you have it. Use this ratio to work out how much gold you should have in your portfolio.

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Use this ratio to work out how much gold you should have in your portfolio
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